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Victoria Chem

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Submitted By nutakkib
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A major competitor in the chemistry industry worldwide, Victoria Chemicals was a leading producer of polypropylene, which is a polymer used in a range of products; such as carpet fibers, packaging, and automobile parts. Lucy Morris, the plant manager of the Merseyside plant in Liverpool notice a decline in stock price from 250 pence per share in 2006 falling to 180 pence per share in 2007. Renovating the Merseyside plant would increase production efficiency and still become the worldwide competitor in its industry. Victoria Chemical’s forecasting concerning its engineering cost shouldn’t be included in the DCF analysis of the project. As shown in the model, its preliminary engineering cost (PEC) for 2008 is 0.5 ($500,000) and nonexistence from 2009 to 2022. Because the expense of $500,000 from the PEC is already incurred they should be kept off the DCF analysis because whether or not we do the project, we’re still obligated to pay for this cost.
Assistant Plant Manager Concerns The EPC renovation should not be included in the model for the polypropylene line. These are projects with differing lives and required replacement at the end of each projects economic life. Leaving all assumptions as is a sensitivity analysis shows that this project would be profitable with a forecasted discount rate of 2%. Based on current assumptions this project earns a real rate of return of 2.5%. Our recommendation would be to model the EPC project based on forecasted increases in volume and prices versus relying solely on information gleaned during this recessionary period. Using a 30-year projection with an assumed discount rate of 7% and a growth rate of 9.51% annually this project would yield a positive NPV of $930.08 all other variables being held equal. Modeling this projects cash flows out to 50 years with an annual growth rate of 1% and a keeping the required discount rate at

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